PDA

View Full Version : Auto lease question



Rick Potter
09-24-2013, 11:33 PM
In a previous thread, I spoke of buying a new car around Christmas. In the meantime, I have been tracking prices, so I will be informed. I have never leased a car, and I notice some pretty good lease deals out there (I think).

Question: Is it possible to lease a new car, and prepay the lease, thereby saving the interest cost? This is what I did when I got my solar panels, and it saved me a bundle.

I am not ready to be 'involved' with the car dealers yet, which is why I am asking for input here. The total cost of various leases certainly differs between dealers, probably the interest rate they are charging?

Rick Potter

Mike Henderson
09-24-2013, 11:38 PM
The one thing about a lease is that someone is betting that they can make more money by buying the car and leasing it to you - and they generally win that bet.

In my opinion, the cheapest way to own a vehicle is to buy it, preferably paying cash, and keep it for a long time.

Mike

Jerome Stanek
09-25-2013, 7:08 AM
The last car I leased was a 2007 explorer I turned in a lease before this one and didn't put any money down on this one. The 3 year lease came $11736 and when the lease ended I bought it for what the terms were $14500 so I ended up paying over $8000 less for it but that doesn't happen all the time. The dealer wanted it back because it was low mileage and the buy out was so low. the same explorers with more mileage was on the lots for $6000 more than I paid.

Rich Engelhardt
09-25-2013, 7:21 AM
Question: Is it possible to lease a new car, and prepay the lease, thereby saving the interest cost?
Yes - but - This explains it better than I could

http://www.leaseguide.com/sn/prepaid-lease.htm

Obviously, a large part of the profit for the lease company comes from the interest so they aren't going to be real open to losing that.

Howard Garner
09-25-2013, 7:51 AM
Watch out for the "low mileage lease", especially if you drive a lot.
Those TV ads make it look so good.

David Weaver
09-25-2013, 8:16 AM
The last car I leased was a 2007 explorer I turned in a lease before this one and didn't put any money down on this one. The 3 year lease came $11736 and when the lease ended I bought it for what the terms were $14500 so I ended up paying over $8000 less for it but that doesn't happen all the time. The dealer wanted it back because it was low mileage and the buy out was so low. the same explorers with more mileage was on the lots for $6000 more than I paid.

I had a coworker who leased a chevy blazer back in 2000. It was such an undesirable vehicle (market-wise) that he bought it at lease end and ended up paying less in cash terms than a discounted sticker would've been if he'd have bought it outright. When you adjusted the values with any interest at all, he was ahead even more. That was the first time that I realized that a lease can sometimes be a better deal than a buy, but lease terms seem to go through chicken and feathers periods.

Rich's link is the same one that I found when I googled the scenario. Most of the people I personally know who lease either:
1) have no interest in owning a car
2) don't have enough cash to buy a car
3) use a lease as a means to always have a car they couldn't afford to buy

Actually, I guess I can't think of any #1s that aren't corporate buyers or car agreements as part of a compensation package but I know a lot of people who can't rub enough nickels together and who want to look more well off than they are. So the dealer might look at you like you have 6 eyes when you go in, because your scenario would put you in #1.

Charles Wiggins
09-25-2013, 9:41 AM
The one thing about a lease is that someone is betting that they can make more money by buying the car and leasing it to you - and they generally win that bet.

In my opinion, the cheapest way to own a vehicle is to buy it, preferably paying cash, and keep it for a long time.

Mike

Financial guru Dave Ramsey calls the car lease a "fleece." Here's why: http://www.daveramsey.com/index.cfm?event=askdave/&intContentItemId=10367

Brian Elfert
09-25-2013, 9:51 AM
I know that at least one Cadillac dealer locally has been advertising a paid up front $9000 two year lease for a Cadillac. I don't see how the leasing company makes any money if they don't charge you some sort of fee for using their money. Even if you prepay the entire amount up front the leasing company is still fronting $10,000 or more additional to pay for the car. If the leasing company deliberately undervalues the car at lease end to make more money then you could buy the car and make the money.

Jerome Stanek
09-25-2013, 10:32 AM
Financial guru Dave Ramsey calls the car lease a "fleece." Here's why: http://www.daveramsey.com/index.cfm?event=askdave/&intContentIte mId=10367 (http://www.daveramsey.com/index.cfm?event=askdave/&intContentItemId=10367)

So I'm driving a $36000 car for $25000 and he said that is not a good deal.

John Pratt
09-25-2013, 10:54 AM
So I'm driving a $36000 car for $25000 and he said that is not a good deal.

I think the logic is that if you paid $25,000 for a car over the period of three, four, or for whatever time period the lease is for, did the car depreciate that amount of money? If not, you paid to much for the car and if the vehicle is then turned back in, you have basically rented it and have nothing of value remaining to show for the money spent. If a lease was a good deal for the consumer and car dealers were losing money, they would not offer them. There are always exceptions to the rule, but the average lease favors the dealer, not the customer. When you "buy" a car, even though it too loses value, at the end of paying for it you still have something of value that you can then resell.

The same can be said for buying a slightly used car vs. a new car which loses a tremendous amount of value when driven off the lot (which is a whole different discussion).

Jeremy Hamaker
09-25-2013, 11:27 AM
So I'm driving a $36000 car for $25000 and he said that is not a good deal.

If you buy a $36000 car at 3%, for 5 years, you pay a total of $38812 according to a random car loan calculator I found online.
At the end of that 5 year span, if you sell the car for more than $13812 then yeah, leasing for $25000 was not a good deal compared to buying.
So what does everybody think? Can you generally sell a well kept $36000 car for more than $13812 after 5 years of ownership? (kept as well as you'd have to take care of a leased car...)

Can you sell a 2013 Toyota Avalon XLE Touring model ($36000) for more than $13812 in Sep. 2018?
Can you sell a 2013 Honda Crosstour EX-L (2WD V6) ($34370-a little low. Throw in shiny wheels) for more than $13812 in Sep. 2018?
Can you sell a 2014 Ford Taurus Limited (AWD) ($36050) for more than $13812 in Sep. 2018?

Some examples I found as a fer-instance...

I really don't know the answer. But that's the actual statement that Dave Ramsey is trying to make in his example (as I understand it)...

David Weaver
09-25-2013, 11:46 AM
I don't know what Dave Ramsey's background is, it may be that he doesn't have the ability to do time value of money calculations, but it is a fact that there are instances where someone leases a car and then makes a deal at the end of the lease to buy the car at a residual value that makes the entire cost of owning a car less for the person who leased than the person who would've bought outright.

It may be that he's ignoring that that occurs, or that sometimes makers will offer lease incentives to market cars to people who can't or won't buy them such that the total terms of the lease are just as favorable (if a lease is right for you). Clark Howard, who is a little bit less self promoting than Dave Ramsey will often make comments about whether or not the lease environment is generally friendly or if at a given time, manufactures are not providing favorable lease terms.

To state that it's always a bad deal as ramsey has stated is not correct, though. To state that it may often be a bad deal (often <> always) is something entirely different.

I have also talked to people who leased where the dealer offers the car at the end of the lease (and they like it) at the original lease terms, which after three years of market experience tends to be way overpriced for the car in question. The dealer is obviously going to take a loss when they do actually sell the car to someone, but sometimes they don't budge (it could be because the dealer itself has to return the car to a sub business - the finance group, etc, and can't negotiate on their behalf).

It's pretty clear that Jerome paid far less for his explorer than the sticker, and probably a good bit less than it would've cost him to buy the car outright if he had negotiated - and that is before adjusting for the time value of money. Dave Ramsey just isn't correct in this case.

In addition, Dave's commentary about maintaining the car is misleading. You maintain the car whether you leased it or not. Unless your lease is really long, most of the work aside from routine car would be warranty work in a lease, anyway. And in the case where you might not favor the car so much at the end of a lease because you find out your particular leased car is a dud, it may even save money.

The environment that Jerome leased his explorer in was extremely unfavorable at the end of 3 years, and probably why the manufacturer/dealer/finance wing was willing to take such a huge loss on it to unload it to him. He made out well.

Don Morris
09-25-2013, 11:49 AM
I asked my son who has a business degree, owns his own company, and has leased several cars over the past several years. Here is his take: "auto leasing is a simple game…..the question is…are you willing to pay extra (in the form of higher interest rate…also known as the “money factor”) for the convenience of not having to maintain the vehicle and own a depreciable asset.
So, it is more expensive in the long run but you have to make the tradeoff decision…is that expense worth being able to hand it over in two or three years and get another new car? Only the person making the decision can answer that for their own financial condition, wants, desires, and ability to take on the risk."

David Weaver
09-25-2013, 12:17 PM
It is usually more expensive in the long run to roll from one lease to another than it is to buy a car and maintain it and buy another one at the end of its useful life.

It is also probably cheaper on average to lease cars (if you can meet the mileage terms of the lease and take care of the car properly) than it is to buy a car every two to three years. At least in the terms I have seen, it is.

You can't really make a blanket statement about whether or not a particular lease (and purchase at lease-end) is better than buying a car, though, until you literally have gotten an initial price and then also gone through the lease and purchase, and then adjusted for some relevant interest rate to discount the lease end purchase back to the purchase date to make a relevant comparison to buying. The car dealer is guessing on the lease, too, and the more they want to lease cars, the more aggressive they'll be (and the better the chance is that you'll have something like Jerome's case occur where you get a better deal on a lease-then-buy than you likely would've on just a buy).

I don't meet many people on a daily basis who would be able to do the calculation to determine the present value of the lease payments plus the buy at the end, and even if you can, it's a guess. If the dealer refuses to sell at lease end or if the terms are unfavorable, then you can't always just do one or the other that easily. You can, however, stand to maybe make out even better if:
* the original terms of the lease-then-buy are neutral vs. the buy (they often aren't, but sometimes they are in some cases)
* the buy price at the end is above market and you can just go out to the used market and buy something equivalent for even cheaper

In that case, you would have had use of a new car for the lease period, have an equivalent vehicle at the end and paid less than someone buying also. That is actually something you could plan on doing regardless of lease terms if you think the residual value of the car implied by the lease is too high (if the terms of the lease aren't cheating you on interest, which you'd have to calculate yourself to find out what the interest is). If the lease terms guess the car's residual value way too high, you're probably going to end up with favorable lease terms.

I've had this discussion with people before, and there is always resistance to the idea that you can lease and end up in a favorable circumstance one way or another, but the numbers tell the truth. Just as they tell the truth when the terms are worse to lease and the circumstances make the lease-buy much more expensive (for example, if you lease implied a low residual value, with no option to buy at the end of the lease at that residual, and you chose to go out to the used car market and buy at the higher market price).

Charles Wiggins
09-25-2013, 12:37 PM
So I'm driving a $36000 car for $25000 and he said that is not a good deal.

[When I wrote this I had not read your post about buying the car at the end of the lease. The math is better, but it still makes no sense to me to rent a car long term. Plus you are no longer driving a $36K car. I don't know what the depreciation on it would be, but if the original MSPR was $36K it NEVER WAS a $36K car.]

Without getting into all the complicated math of the break-even point, I look at it this way, you are spending $25K to RENT a $36K car. You spend all that money, and at the end of it you have nothing. You paid for 2/3 of the car and just hand it back in, and you have to start all over. TO ME, that makes no sense. If it works for you, great!

I'd spend a few thou. on some cheap transportation and save up for something newer and more reliable, which is what I have done all my life. I drove my previous truck for 20 years. I now have a 2005 Silverado which I bought with cash in 2009. It's comfortable, and it serves me. My wife drives and 2003 Santa Fe, which is very nice - it had been babied. We bought it about two years ago from friends at church, for cash.

I don't get hung up on what I drive. A vehicle is just a tool to me. Something to get me and my stuff where I need to go. Hopefully, reasonably comfortably. In the past when we've needed something more reliable or comfortable for a long trip we borrowed or rented a car. When we got married we rented a very nice, late-model sedan for the a whole week of the honeymoon for a couple hundred bucks. But then the next month we didn't have to spend another $200 on a car payment.

About the only thing I'd ever lease is a place to live. Buying a house is more expensive than most folks can cover with cash, and you have to have some place to crash at night. And in some circumstances renting a place to live makes MORE sense than buying, like when you're young and still fairly transient. You can't take a house or apartment with you (in most cases), so if you're buying and have to move unexpectedly you have this giant anchor you have to deal with. I don't know how many times I've heard folks in the military call Dave on his show and a big part of their financial woes is the house they bought, then the military spouse got reassigned. There's no reason to lease a car, it's mobile. You can take it wherever you need to go, or store it easily. Plus, when you rent a place to live, when something breaks, it's the landlord's headache.

Dave Anderson NH
09-25-2013, 12:47 PM
The real answer is yes, no, and maybe. I have always worked from the viewpoint that cars and homes are not true investents and I do own both. In my definition of the term investment, it has to be something liquid or readily convertible to cash. Unless you are in financial difficulty neither a car or home fit this category. You will always need both a place to live and a form of transportation. To me a car is a necessary evil into which I sink gas and money so that I'm more mobile than using a bicycle or going shanks mare. Therefore the only thing that matters in the end is lifetime cost of the vehicle whether that be the term or the lease, the usable life of the vehicle, or the lease with buyout. You can make your calculations as simple or sophisticated as you choose, but you have to understand you are not investing in something that is an asset at its end of life.

Gordon Eyre
09-25-2013, 12:54 PM
My take on this is to put your lease payment in the bank until you have enough money to pay cash for the new car or a low mileage used car. This saves you all of the interest you would pay for the lease and in addition puts you in the drivers seat, so to speak, when negotiating the price you are willing to pay for the new car. After you buy your new car just continue to put a modest amount in the bank and in a few years you will be ready to purchase another new car for cash. I have done this and have not had a car payment for 20+ years. My Infinity has 219000 miles on it and still runs great. My wife drives a newer Caddy.

Brian Elfert
09-25-2013, 1:35 PM
Car dealers really don't like cash deals as it removes a lot of opportunities for extra profit. If a car dealer lines up the financing they often get a payment from the finance company. It is also easier for them to sell all the add-on services when they price them based on monthly payment add-ons instead of the real cost.

I know people who finance a car for a month to get the best deal and to get any special promotional offers for financing. They then pay off the loan after a month.

Gordon Eyre
09-25-2013, 1:51 PM
Car dealers really don't like cash deals as it removes a lot of opportunities for extra profit. If a car dealer lines up the financing they often get a payment from the finance company. It is also easier for them to sell all the add-on services when they price them based on monthly payment add-ons instead of the real cost.

I know people who finance a car for a month to get the best deal and to get any special promotional offers for financing. They then pay off the loan after a month.

I have only had one dealer turn me down on a cash deal and he then called me at home three days later and I went right down and bought the car. When that happens you know you have negotiated a rock bottom price and that the dealer just wants to turn over his inventory.

Jerome Stanek
09-25-2013, 1:59 PM
The car listed for more than $36000 but I figured I could get it for that out the door.

Brian Elfert
09-25-2013, 2:04 PM
Unfortunately, I am not in a position to pay cash for a new car. I buy new or slightly used cars to avoid repair issues. I know lots of folks who have cars with 100,000 plus miles and they seem to spend $2,500 or more every year on repairs (Repairs, not routine service). If I had to spend $200 a month on car repairs it would make more sense to spend $200 a month on a newer car.

I will admit there are also plenty of people with 150,000 plus miles on a car with zero repairs. With my luck I would be the person spending $2,500 a year on repairs.

David Weaver
09-25-2013, 2:30 PM
Without getting into all the complicated math of the break-even point, I look at it this way, you are spending $25K to RENT a $36K car. You spend all that money, and at the end of it you have nothing. You paid for 2/3 of the car and just hand it back in, and you have to start all over. TO ME, that makes no sense. If it works for you, great!


Actually, in his situation he bought it. So at the end of the lease, he's spent $25 or $26K and he owns the car. And he had the luxury of waiting three years to pay for more than half of it. Since it looks like $14,500 was already negotiated as the retained value at the end of the lease, he basically leased with the option to buy the car outright for $10k+ less than sticker.

That would lead us to believe at the end of it that ford had intended to sell it cheap from the outset, but the lease was still a good deal and he owns the car after paying the residual value.

I'm generally a cash buyer, so this is all interesting to me only from an academic standpoint.

(the house thing is a whole other ball of wax. A small house and a lot of low tax land (if you just have to spend the money) makes much more sense than a big house and a little bit of high tax land, but most people only want the big house, which as a separate segment of the property will always depreciate in the long term, esp. once you calculate the taxes and cost of maintaining).

Charles Wiggins
09-25-2013, 2:56 PM
Actually, in his situation he bought it. So at the end of the lease, he's spent $25 or $26K and he owns the car. And he had the luxury of waiting three years to pay for more than half of it. Since it looks like $14,500 was already negotiated as the retained value at the end of the lease, he basically leased with the option to buy the car outright for $10k+ less than sticker.

That would lead us to believe at the end of it that ford had intended to sell it cheap from the outset, but the lease was still a good deal and he owns the car after paying the residual value.

I still don't see it as a good deal. Maybe an OK deal. Assuming that the value of the car was $36K at the outset, using Edmunds' estimate (http://www.edmunds.com/car-buying/how-fast-does-my-new-car-lose-value-infographic.html) of 58% TMV after three years the car would only be worth $20,880. That's going to vary a lot depending on brand, model, and condition, but still, it's ballpark.

All of this reminds of a fellow I grew up with who went into the Navy right out of college. He wasn't married and lived very conservatively and saved most of what he earned, so he had a big pile of cash when he was ready to muster out. He knew he'd need a vehicle and there was a brand new truck that caught his eye. He went to the dealership and offered them several thousand in cash off the sticker and they had a laugh. But, he went back the next week and the truck was still there and he told them his offer was still good, and they still refused it. I can't remember how long that went on, but he would go back every week with the same offer. Finally, when the truck didn't sell they met his price.

Mike Henderson
09-25-2013, 2:58 PM
The way a lease works is that the leasing company buys the car and then leases it to you. They may get a bit better price for the car than you could get, but probably not by a whole lot.

The people who buy the car (the leasing company) expect to make money on the lease. So when everything is considered: the original cost, the cost of money, and the residual value, they come out on the positive side. They're not always right and sometimes they lose money on a lease. But on others, they make more money than they projected. By taking a lease, you're betting that they're going to lose money and you're going to get a better deal than you could get by buying the car outright. Just like betting against the house at a casino, most of the time you lose.

Mike

[Also, the leasing company pays the dealer a commission for writing the lease, and that expense has to be included in the lease cost, also. The leasing company is not a charity - all of their costs and profit has to be eventually paid by the person getting the lease. I've always paid cash for my cars. I've had dealers tell me I can save money by leasing so I always told them the same thing - "Send me a spread sheet showing how it's cheaper." Not one of them ever sent me a spreadsheet.]

Jerome Stanek
09-25-2013, 4:45 PM
On Fords the leaser is Ford. You make your payment to them and if you don't buy the car at the end it goes to auction or the dealer has a choice of buying it. This is what some people that work the lease program have told me.

Mike Henderson
09-25-2013, 4:59 PM
On Fords the leaser is Ford. You make your payment to them and if you don't buy the car at the end it goes to auction or the dealer has a choice of buying it. This is what some people that work the lease program have told me.
I would not be surprised if Ford also has a loan department where you can get a loan directly from Ford to buy a car. If so, that group will be tasked with making a profit, just like any other part of Ford. Same for leases carried by Ford. Ford will not offer leases unless they can make money on them.

It doesn't matter who originates the lease - they still have to make money on the lease.

And just in case you think that the Ford leasing people get to buy the car cheaper, it doesn't work that way. The car that is being sold is usually on the dealer's lot. The dealer has already paid for that car (well, they have it on a floor plan, but it's the same thing). When that car sells, the dealer has to make a profit. So the leasing company - no matter who it is - buys the car from the dealer at a profit to the dealer. If the dealer didn't make a profit on the lease sale, they'd never write a lease. And leases are generally so profitable, the dealer gets a commission for writing the lease, in addition to the profit on the sale to the leasing company.

Mike

David Weaver
09-25-2013, 5:19 PM
I still don't see it as a good deal. Maybe an OK deal. Assuming that the value of the car was $36K at the outset, using Edmunds' estimate (http://www.edmunds.com/car-buying/how-fast-does-my-new-car-lose-value-infographic.html) of 58% TMV after three years the car would only be worth $20,880. That's going to vary a lot depending on brand, model, and condition, but still, it's ballpark.


Jerome actually got the car that the calculator said was worth $21k for $14,500.

The basics of the deal are as simple as Jerome owns a car that stickered for $36,000 and his total cash outlay was $25K or $26K. So when the rubber hits the road, the decision is whether or not a $36K explorer at a little over 2/3rds sticker is a good deal.

I'd imagine it would've been harder to go in and buy the car outright when new for the total that he paid, but I could be wrong - they may have really been dumping explorers at the time. I recall Chrysler cars having enormous differences between street and sticker price at the time. A friend purchased a chrysler product because, in his words, he could get a stripped down toyota or a loaded chrysler for the same price.

Rick Potter
09-25-2013, 5:26 PM
OK, here are some real figures. The car is a new Chevy Volt, which I explained in a previous thread. I have excess solar, and it would be pretty thrifty around town, which is mostly where I would use it. Being a Volt, it makes it a bit difficult to figure what it might be worth at the end of the lease of three years, as there is no real data to go by.

I have two ways to look at this. First, I could lease it, assuming the new technology will be much better in three years, and I could get another one without too much risk, in case mine depreciates badly. Second choice would be to buy it, hoping the depreciation would be much better than normal and I could get the new tech, or have my choice of keeping it.

Now, the Edmunds true value estimator for the Volt shows that it (costing 38K) should depreciate $12,975, or 34% over the three year lease (thanks Charles for the link). This seems to be lower depreciation than most, per Edmunds prediction which would make me lean towards buying the car. But that may be changed by how much they figure the buyout at the end would be.

Two current lease ads locally. First one....$169 per month, three years, $3500 at start, for a total of $9604 for three years.
Second one....$255 per month, three years, no money at signing, for a total of $$9180 for three years.
Both are plus tax, etc.

Now comes the kicker. Let's not forget the $7500 federal rebate, and the $1500 state rebate, for a total of $9,000 off the negotiated price. Dealer keeps that on a lease.
The final consideration is that during the labor day sales, you could get $4000 off sticker also. That makes it a $38,000 car minus $13,000 ($9,000 and $4,000), a real price of $25,000, assuming end of year sales prices would be about the same.

It sure looks like buying is the way to go, even though I don't know what the lease buyout would be.

Am I thinking this through correctly, or am I missing something??

Rick Potter

David Weaver
09-25-2013, 5:47 PM
Second lease deal is definitely better. Adding the fed and state incentives, though, I'd buy. Have to believe the chance that a 3 year old plug-in in California being less than 16k in value is pretty low. Don't know what would make any new tech cars any better any time soon given the limiting factor is the battery. Batteries aren't going to get much better until nanomanufacturing is common.

Howard Garner
09-25-2013, 8:30 PM
[QUOTE=Rick Potter;2159980]OK, here are some real figures.

Two current lease ads locally. First one....$169 per month, three years, $3500 at start, for a total of $9604 for three years.
Second one....$255 per month, three years, no money at signing, for a total of $$9180 for three years.
Both are plus tax, etc.

\quote

But what are the mileage limitations on these leases. Would your normal driving be less then the allowed, if over, what is the per mile charge.

Most of these that I have seen on TV are for low mileage leases.
Myself, I drive 25-30K a year so a lease does not make sense to me.
YMMV

Howard Garner

Ole Anderson
09-25-2013, 11:28 PM
Leasing makes sense if: 1. You are a fairly low mileage driver, not more than 12-15k per year 2. You want to drive a new car (or truck) every 24-39 months 3. You lease a car or truck that is expected to have a high residual, hence a lower lease rate. 4. You lease a vehicle that is being offered at a "special" low rate and doesn't have a huge up front down (pre) payment. I agree that if you buy a vehicle and run it into the ground, you will do better than a lease, but you miss out on having that new car feel and smell, and risk making repairs on your own nickel rather than under warranty.

Rich Enders
09-26-2013, 12:42 AM
Old conservative me... Wouldn't our financial situation be a lot more stable and predictable if we would eliminate speculating on the future. Leasing is borrowing. Paying back loans depends on unpredictable things. Acquire what you can pay for in cash. If you don't have the cash..... WAIT until you do.

I can't wait to hear what all the gamblers will have to say.

Rick Potter
09-26-2013, 3:04 AM
10K per year for each. I wouldn't use it more than that, and pretty much all around town. I have other vehicles.

Rick Potter

David Weaver
09-26-2013, 8:31 AM
Old conservative me... Wouldn't our financial situation be a lot more stable and predictable if we would eliminate speculating on the future. Leasing is borrowing. Paying back loans depends on unpredictable things. Acquire what you can pay for in cash. If you don't have the cash..... WAIT until you do.

I can't wait to hear what all the gamblers will have to say.

(remember, I'm a cash buyer). There are plenty of situations where a lease makes sense, especially if there is an option to buy at the end of a vehicles lease period. The trouble is most people don't have the ability to do the math to figure out whether or not a lease plus buy price is equivalent to a buy deal at the outset. That could be solved pretty easily (and maybe it has been) with an app that allowed you to put in down payment, monthly payment, term of the lease and buy option at the end.

More specifically, leases make a lot of sense for businesses who provide cars as a perquisite. The business doesn't want to own or maintain a car, and the perquisite amount is built into someone's compensation package already. It probably also works better for tax reasons on their part.

We'd probably all be better off if we spent within our means, but that doesn't mean someone can't lease a car. In a lease with buy option at the end that has the same present value as buying, you're probably better off. You can cast off a lemon a lot more easily that way, and you don't get stuck with "trade" value and the obligation to buy a car from someone who would give you a value you can tolerate.

I asked the dealer how many people pay cash the last time I was in (I bought a cheap car, I always try to - the value of scads of options in a car dissipates within the first few years, and it only takes a look at a 4 year old used loaded car vs. stripped down to find that the options retain value much less well than a basic stripped down car - maybe half as well or less), and the dealer said they only get about 10% cash buyers. Presume that a lot of that 10% is in the retiree group or close to it.

I could do equivalents for cash and do just fine on a lease with buy option if I had to, but I don't want to hassle with it. I also think that anything you do (home improvements, cars, etc) you feel a lot more pain from purchase if you buy cash, and you tend to buy less because $1,000 at once stings a lot more than 60 payments of $18-20 per month. If you put a dollar value for every time you use an option in a car and find out it costs you two bucks or four bucks to open the sunroof every time you do it over the life of a car, etc, it makes you value cheaper a lot more, and take that money and save it or put it toward something you want to spend money on.

Unfortunately, if everyone went to "only buy what you have cash for, and borrow only for essentials at the bare minimum", the economy would collapse.

Duane Meadows
09-26-2013, 10:47 AM
10K per year for each. I wouldn't use it more than that, and pretty much all around town. I have other vehicles.

Rick Potter
Yep, that what I said when I leased 1995 Rodeo for five years. Drove 1.5 miles to and from work at he time. A year and a half later I transferred to a position 70 miles away(No real choice at the time) Cost me a fortune to get out of that lease! The only way I would even think of leasing again(and even that is iffy) would be for a business where the lease costs are deductible from income tax!

Also on a Volt, what is the cost of replacing a bank of batteries? Who pays what after how long? Don't think there is any way those things are cost effective!

Brian Elfert
09-26-2013, 12:10 PM
Sometimes the automakers will have a lease special simply to sell cars. They will accept little or no profit on the financing side in order to sell cars.

As already mentioned, businesses will often lease cars. Car leasing has tax advantages versus buying for businesses. A lease payment can be written off on taxes the same year. A purchased vehicle often must be depreciated over multiple years. People that get a monthly car allowance for work often lease cars instead of buying. If they buy a car they are responsible for repairs when warranty expires.

William Payer
09-26-2013, 1:39 PM
We were car shopping last month and came across information regarding leases ( i usually pay cash and know little of leases) that was interesting. The interest rate on the car lease was 0.01% ( virtually no interest) if we chose to lease with an option to buy our cost was actually lower than a cash purchase as the interest was somewhere in the $20 range and we only pay state taxes on the residual value (58% of MSRP) of the vehicle at the end of the lease. The sales manager stated increasing the monthly payment substantially would lower the residual even further ( the IRS set a bottom limit if 20% for residual values) lowering the state taxable amount even further.

David Weaver
09-26-2013, 1:47 PM
The dealer would like it if you minimized the residual, too, because they'd have you locked in on the lease and pretty much guarantee a sale at the end of the lease, or they auction the car still above the residual. But, if you intended to buy the vehicle no matter what and the tax benefit is there....

.. there's always details (like the tax, etc) that can make a non-starter look cost neutral, etc, that's yet another reason I shy away from blanket statements and condemnations like Ramsay had made. Run the numbers, they will tell you if something is or isn't a good deal. If 90% of them are duds as deals, but 10% are winners, the 90% of duds don't make the 10% good propositions duds, too.